Asian Shares Down Amid Uncertainty Over Greece

By Gregor Stuart Hunter
        Asian markets opened down Monday after Greece shut its banking system, sending stock markets down in Japan and Australia and spurring safe-haven buying in the yen.

        The euro fell 2% against the yen in early Asian trade.

        Australia's S&P/ASX 200 index fell 2% in early trade, while the Nikkei 225 Stock Average was 2.2% lower on the news from Greece.

        "Knee-jerk frustration over Greece is roiling markets globally. That may continue for a few days--for investors long the market, it makes sense to ride out the storm," said CLSA equity strategist Nicholas Smith.

        The unfolding drama in Greece adds another layer of uncertainty to Asian markets after a big selloff in Chinese stocks last week. The People's Bank of China, or PBOC, cut interest rates over the weekend, a surprise move aimed at helping stop the stock declines.

        Some analysts warned that selling in China could continue Monday as investors who have borrowed heavily to fund stock purchases--through taking on margin debt--are forced to sell to repay brokers.

        The Shanghai Composite Index, which fell 7.4% on Friday is down 19% from a recent high, on fears the market has risen too rapidly on the back of heavy borrowing. The smaller Shenzhen market and the ChiNext board, which consists of small-cap companies and is sometimes known as China's Nasdaq, have already fallen more than 20% to enter a bear market.

        "Friday's dramatic selloff can still trigger waves of margin calls on Monday," said Hao Hong, a market strategist at Bank of Communications. "Whether the market can get a lift from the PBOC's weekend move to stem further forced closure of margin accounts remains to be seen. Traders will likely seize the fleeting technical reprieve to exit their positions, and continue to induce short-term volatility."

        China's markets may undergo "a very muted bounce...that fades over the course of the day and the early part of the week," said David Welch, head of equity sales trading at Reorient Group, a Hong Kong-based investment bank. "Too much technical damage has been done and sentiment is still fragile so I think investors use any bounce to sell and limit recent losses."

        On Saturday, China's central bank cut its benchmark lending rate by 25 basis points to 4.85% and its one-year deposit rate by the same amount to 2%. China's central bank also lowered the amount of capital that banks must hold in reserve for some lenders in a bid to free up money for new loans.

        "The sharp selloff last week on the equity markets no doubt influenced the timing of this move," economists from Societe Generale wrote in a research note. "The direct spillover from the equity market to the real economy is fairly modest, but the indirect 'confidence factor' is hard to measure and Beijing appears to have little appetite to experiment with an equity crash."

        Write to Gregor Stuart Hunter at gregor.hunter@wsj.com

        (END) Dow Jones Newswires

        June 28, 2015 21:23 ET (01:23 GMT)

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